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Security One, L.P. v. L.G. Tara

February 10, 2009

SECURITY ONE, L.P., AND CHRIS DICRISTO CUSTOM HOMES, LLC, PLAINTIFFS-APPELLANTS,
v.
L.G. TARA, LLC, AND ITS MEMBERS, L.G. FINANCIAL CONSULTANTS, INC., RODNEY H. GREEN, MARVIN LEVIN, MR. AND MRS. LARRY METZMAN, RUTH VIZAK, JOAN KAHN, EXECUTRIX OF THE ESTATE OF HARRY KAHN, DECEASED, RITTENHOUSE FOUNDATION, C/O JOSHUA KLEIN, PRESIDENT, EUGENE SHUSMAN, EVA K. RAY, CRAWFORD, WILSON & RYAN, LLC, PROFIT SHARING PLAN/ FRONEFIELD CRAWFORD, JR., KENNETH COHEN, EDWIN BERKOWITZ, PINNA SIGLER, AND BRYAN RICHARDSON, DEFENDANTS-RESPONDENTS, AND BERNARD FROMM, MAYA GOLDBERG, HANOVER FIRE & CASUALTY INSURANCE COMPANY, MARC MILLER, AND FREDERICK GOLDFEIN, DEFENDANTS.



On appeal from Superior Court of New Jersey, Law Division, Burlington County, No. L-2905-05.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Submitted November 18, 2008

Before Judges Wefing, Parker and LeWinn.

Plaintiffs appeal from a trial court order dismissing their complaint. After reviewing the record in light of the contentions advanced on appeal, we have reluctantly concluded that the matter must be remanded for further proceedings.

Plaintiffs' complaint sprang from an evidently unsuccessful real estate venture in Mount Laurel. Tara Estates, LLC ("Estates") was formed by plaintiff Security One, L.P. ("Security") and L.G. Tara, LLC ("LG") under an operating agreement effective July 1, 1998. The operating agreement indicates that Estates was formed solely for the purpose of building and selling thirty-six single-family homes in Mount Laurel. Christopher DeCristo was the general partner of Security and the principal of Chris DeCristo Custom Homes, LLC ("Custom Homes"). LG was a group of twenty investors assembled by Rodney H. Green and Marvin Levin, the principals of LG Financial Consultants, Inc. ("LG Financial"). The operating agreement named Christopher DeCristo as the manager of Estates. The parties envisioned an arrangement under which LG raised $860,000 as start-up capital from its investors for DeCristo to use through Custom Homes, his construction company, to build and sell the residences. The operating agreement called for Estates to pay LG $42,000 from the proceeds of each sale as it occurred until LG's capital contribution had been repaid in full. Profits from subsequent sales were to be divided according to an agreed-upon schedule.

Unfortunately, disputes arose and the development was not completed as had been anticipated. LG claimed that DeCristo was not managing the project properly, and DeCristo claimed that LG was interfering with the financing of the project. The agreement the parties had executed called for them to submit their disputes to binding arbitration before a single arbitrator selected by the American Arbitration Association. The arbitrator was required to be a certified public accountant. The agreement also provided that any award was to be "final, binding, non-appealable," and enforceable by judgment in any court that had jurisdiction.

In July 2000, separate claims for arbitration were filed. LG's claim was filed first, and it named Estates and Security as the opposing parties. It sought the removal of DeCristo as the manager of Estates, an accounting of funds Estates had received, and the production of certain records. The following day Security and Custom Homes*fn1 filed a demand for arbitration, naming LG, LG Financial and Rodney Green as the opposing parties. They alleged breach of contract, breach of the implied covenant of good faith and fair dealing and breach of fiduciary duty, seeking monetary damages.

These two demands were subsequently consolidated before a single arbitrator who, during the course of the arbitration proceedings, issued several interim orders, one of which removed DeCristo as the manager of Estates and named LG as manager in his stead. That order also named an accountant to conduct an audit of Estates' records and reserved all claims for damages pending completion of that audit.

According to the record before us, Estates made payments totaling $208,032.14 to LG both prior and subsequent to DeCristo's removal as manager. We are informed that of that amount, $198,000 was paid to LG by Estates while DeCristo was manager, and only $10,000 was paid to LG after his removal as manager.

The arbitrator issued his final award in April 2002. It contained the following pertinent provisions. It held that Security and Custom Homes were entitled to reimbursement of $41,250.62 in expenses from Estates and, to the extent that Estates had insufficient funds to meet its obligations, respondents LG, LG Financial and Rodney Green must return to Estates up to $208,032. If Estates had sufficient funds, there was to be no reimbursement. The arbitrator also held that Security and Custom Homes were entitled to indemnification from LG, LG Financial and Rodney Green both on homeowner warranty claims for all homes built by Estates as well as for any shortfalls for bonded improvements, municipal, COAH and engineering fees. Finally, the order denied the damage claims of Security and Custom Homes and directed that LG was liable for thirty-five percent of the arbitrator's fees and expenses and Security, for sixty-five percent.

Upon receipt of the award, respondents' counsel sought clarification with respect to the inclusion of Rodney Green and whether the arbitrator had made him individually liable. The arbitrator responded that if Estates had insufficient funds to meet its obligations after an upcoming closing, "the Respondents, including Mr. Green, are jointly and severally liable, but only to an aggregate of $208,032.00. Nothing in this Award shall be construed to prevent Mr. Green from seeking redress from the other Respondents."

Thereafter, Security and Custom Homes filed a complaint seeking to confirm and enforce the arbitration award. They named as defendants LG, LG Financial and Rodney Green. LG, LG Financial and Green filed a separate complaint in which they named Security, Custom Homes and Christopher DeCristo as defendants. In their complaint they alleged the arbitration award "exhibited gross personal bias and ill will" by holding LG Financial and Green liable as members of Estates although neither was party to the operating agreement, and they sought to have the arbitration award vacated or modified. According to the parties' briefs, these two complaints were consolidated, although the record does not contain an order of consolidation.*fn2

The record does, however, contain an order entered in August 2005 under the Law Division caption of Security and Custom Homes against LG, LG Financial and Rodney Green but bearing a Chancery Division docket number.*fn3 The order was prepared and submitted by the attorney for Security and Custom Homes and sought to have judgment entered against LG and LG Financial; it omitted any reference to Rodney Green. The trial ...


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